Multifactoral Regression Analysis of Inflation in Russian Economy

by miss_rogue

Multifactoral Regression Analysis of Inflation in Russian Economy
Article by chiristine
Background of the StudyIt is widely assumed that macroeconomic conditions have a substantial impact on popular unrest and political instability. High inflation and slow or negative economic growth undermine living standards, especially among the urban poor and middle class, producing dissatisfaction with incumbent governments that may result in demonstrations, strikes, food riots, and other forms of instability. If macroeconomic conditions continue to deteriorate, or if incumbents fail to respond appropriately, this instability may turn violent, perhaps even assuming a revolutionary character. If so, the government may be overthrown, and the survival of the country's political institutions may be threatened.Adverse macroeconomic conditions have been implicated in the downfall of countless governments and have been cited as primary causes of revolution or regime change in cases like Czarist Russia, Weimar Germany, Allende's Chile, and Somoza's Nicaragua. However, there have also been many cases where governments or regimes have survived periods of macroeconomic decline; and many changes of government or regime have occurred during periods of relative prosperity. Moreover, since political instability can adversely affect macroeconomic conditions by influencing the actions of government policymakers and private economic actors, many situations in which macroeconomic conditions seem to produce instability may, in fact, reflect reverse causality. Consequently, although it is widely believed that macroeconomic conditions affect political instability, the causal relationship between these two sets of factors is not entirely clear. Empirical analyses that clarify the nature of this relationship are therefore quite useful.
The Post Soviet Economy During the immediate post-Soviet period, Russia's transition from the Soviet's central planned economy from 1991 to 1998 was labourious. In an economic perspective, said transition years under the tutelage of President Boris Yeltsin's government was a period of economic bedlam (Cooper 2008: 4). During this time, Russia lost thirty percent (30%) of its gross domestic product or GDP. The decline was comparable to the United States's Great Depression during the 1930s. As the ruble collapsed, high inflation rates in 1992 and 1993 affected the average Russian citizen's savings. While well to do individuals invested in hard assets such as art works, foreign currencies and real estate to secure themselves against inflation (Cooper 2008, 4).As such, the disposable income of the general populace was reduced to 25% between 1993 to 1999, forcing the Russian government to issue a new currency, where 1 new ruble is equivalent to 1,000 old rubles. Similarly, foreign investments were inadequate to the stupendous financial and economic requisite of Russia (Cooper 2008: 10). Consequently, Russia's foreign debt soared to 0 billion between 1992 to 1999